Called esure.com, it will provide cover online to private motorists and homeowners in the UK.

The group said it is to invest £150m in esure and expects that the company will employ up to 500 people after three years.

The service is due to start trading early in 2001.

Peter Wood set up Direct Line

The executive chairman will be Peter Wood, the founder of the hugely successful Direct Line telephone insurance business.

Mr Wood said: "This new venture is an absolute dream to me. A powerful combination of factors means that esure is exceptionally well placed to dominate the development of the internet as a major distribution channel for insurance.

"They are the strength of the Halifax brand, the vast potential of the internet and my experience of launching mould breaking companies offering customers great prices and the best service".

The Halifax said esure would offer lower prices than those currently available through its existing direct and intermediary channels.

The market gave the news a warm welcome. At
1120 GMT Halifax's share price was 17.2% higher at 531p, adding to the ongoing recovery from Tuesday's all-time low of 407.5p.

The announcement comes as the Halifax prepares to give more details of its internet-led banking venture, Greenfield.co.

The bank has recruited Charles Dunstone, the 35-year-old founder of Carphone Warehouse, to the board to concentrate on its internet projects.

Halifax chairman Lord Stevenson of Coddenham sale Mr Dunstone had "a very strong media and retailing background" and was "a great fit for an organisation like ours which sees its future in retailing and e-tailng".

This latest project means the company is now committing £1.5bn of capital to its new e-businesses.

"The Halifax believes that e-commerce will transform the sector and we aim to be at the heart of that revolution with esure," said chief executive James Crosby.